Copper surplus in doubt amid Olympic Dam outage

By Peter Ker

The outlook for global copper supply in 2015 continues to weaken, with BHP's Olympic Dam mine in South Australia the latest to confirm cuts to production.

BHP confirmed on Friday that the biggest of the three mills at Olympic Dam would be out of service for six months, meaning copper production would be reduced by between 60,000 to 70,000 tonnes this year.

The biggest of the three mills at Olympic Dam will be out of service for six months.Credit:Peter Ede

The loss was caused by a recent electrical fault, which damaged an important piece of equipment in the mill.

The cuts could represent more than 30 per cent of the mine's expected output, with Olympic Dam producing 184,400 tonnes of copper cathode in the 2014 financial year.

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BHP had told the market previously it would produce 1.8 million tonnes of copper in the 2015 financial year, and while that guidance was not formally downgraded yesterday, it appears under threat.

The miner said it would conduct other maintenance and preparatory work on site during the outage and it was unclear whether jobs would be lost.

The Olympic Dam cuts come just days after Rio Tinto confirmed that its production of mined copper would be 11 per cent lower in 2015 than it was in 2014.

BHP and Rio had confirmed that some of the world's bigger copper mines, including Escondida and Kennecott Utah, would be performing below their potential in 2015, while Glencore has also warned that production from the Alumbrera mine in Argentina would be weaker this year.

Copper was originally predicted to be in surplus in 2015, prompting expectations of weak prices for the immediate future, but the swathe of production downgrades has some, like Macquarie, predicting copper markets will be more balanced in 2015 than thought previously.

Slow development of the next wave of copper mines, such as the Oyu Tolgoi mine in Mongolia, is exacerbating the situation.

Copper prices fell more than 10 per cent in January on weak growth numbers, but Morgans predicted recently the slide was "overdone".

"It is clear to us that a lack of new mines coming on stream and the decline of mature assets will continue to keep the market roughly in balance," the broker said.

The benchmark copper price was $US2.62 a pound on Friday, while BHP shares closed $1.47 higher at $32.17.